Loansharking and the Casino Gaming Industry

Introduction and background

When an unregistered lender provides a loan with an exorbitant interest rate – often referred to as a criminal interest rate – we have what is called loan sharking.

In Canada, for example, the criminal code defines a criminal interest rate as 60% interest or greater.

However, loan sharking is illegal in more ways than just criminally high interest rates. If a borrower cannot repay the loan when required, a loan shark may use the threat of, or actual, violence to enforce the loan repayment. Actual violence is frequently used to collect the debt if threats fail. A loan shark, like a bank, will seize the debtors’ possessions to get their money. In contrast to a bank, a loan shark will seize these items by threatening or physically harming the owner. A loan shark may also accept, or seize, items of value to settle the debt.

A loan shark will typically operate in underprivileged and low-income areas, targeting the vulnerable or financially unsophisticated. The likelihood of needing an urgent emergency loan is higher for people with lower incomes who may live paycheck to paycheck. Given their circumstances, they may not qualify for a traditional loan from a bank or other financial institution. – leading them to turn to unregistered, predatory, lenders. Because the interest rates are so high, those taking out these loans often may be required to take second, third, or fourth loans in order to pay back the first loan.  The original loan may have been for a relatively small amount – dwarfed in comparison to the amount of interest required to be paid.

The amount borrowed from a loan shark working in a low-income neighborhood is typically lower than the amount borrowed from a loan shark connected to organized crime. The loan shark will put up a repayment schedule, which must be followed. Borrowers who fail to make their required payments on time to a loan shark connected to organized crime will almost certainly suffer harm or even perish. The illegally high-interest rates may not deter someone who feels they need money badly enough to risk bodily harm. However, cooperating with a loan shark is a risky move.

The history of loan sharking

In the US, when high-interest grants and loans were forbidden by the Uniform Small Loan Law in the 1930s, organized crime started to operate in the cash advance industry. Underworld lending was prohibited for 15 years in New York City following the earliest accounts of mob loansharking in that city in 1935. For instance, there were no records of gang "juice" activities in Chicago prior to the 1950s. When it first began, illegal loansharking provided loans to the same clients as salary lenders and buyers. Due to their poor credit histories or low salaries, those who used illegal lenders were unable to obtain loans from reputable businesses. Nearly half of all applications were denied by businesses operating under the usury cap, and they tended to lend more to espoused males who have stable jobs and adequate earnings. If getting a legitimate lending at thirty-six percent or forty-two percent a year was out of the question, one could get a cash loan from a mobster at the customary toll of ten-percent or twenty-percent per week for minute advances. Debtors used their bodies as security for mob debts because formal documents were rarely used to guarantee these loans.

Payday lending made up a sizable portion of mob loansharking in the beginning. Office and factory employees made up the majority of the clientele. The revenues from the numbers racket served as the loan fund for these operations, and the senior managers gave lower-level loan sharks 1% or 2% of that money each week. A glimpse of mobster utilization of payday loans can be found in the B-movie Loan Shark from 1952, starring George Raft. Around the turn of the century, there were numerous unregulated payday advance businesses on the Brooklyn waterfront.

According to the book “Loan Sharks: The Birth of Predatory Lending”, this operation was very common in the U.S. from the Civil War until the preliminary stages of the 20th century. The media compared the harshness of lenders to sharks that prey on their victims because of this. The money given frequently came from unidentified sources. Several predatory lenders were discovered after police raids to be affiliated with organized crime.

Organized criminal organizations make money through the sale of drugs, money laundering, and people trafficking. It is the proceeds of these crimes that often funds unsuspecting desperate borrowers' loans at high rates. Predatory lenders virtually never adhered to laws or regulations while providing substantial loans. They assumed the most risk by not conducting a credit investigation and lending without collateral. Additionally, the patron's credentials are not investigated as most legitimate loan applicants are. Loan sharks are known to take an aggressive stance toward getting repaid, often hounding and bothering the debtor to collect the arrears even before the deadline or occasionally subsequent to the obligation being repaid.

Governments have enacted rules and regulations to regulate unlawful lending and punish lawbreakers. For instance, loan sharking is illegal in Canada

Some countries have established a toll-free hotline where people can report unscrupulous lenders.

The risks

There is no legal way for borrowers who are tricked into signing documents that are not legally binding by dishonest lenders to get their money back.

Loan sharks regularly commit some of the following morally repugnant acts, such as:

Blackmailing, stalking, threatening, harassing, using force, defacing the non-payer’s home with cacography as well as notices, complaining to the delinquent's boss, sending goons to warn the defaulter, holding family members hostage, and pressuring the defaulter to take on board new debts in order to pay off the old ones are just a few examples of debt collection tactics.

Cash advances

Authorized payday advance companies that grant funds at lofty rates of interest in exchange for a postdated check are frequently referred to as loan sharks by those opposed to the practice because of the exorbitant annual percentage rates that enslave debtors and prevent them from using illegal lending and violent collection techniques. The salary loans of the early-twentieth- century, to which the word "shark" was initially used, are comparable to the payday loans of today, which are now legal in some areas.

According to a 2001 juxtaposition of brief advance rates levied by the Chicago Outfit organized crime syndicate and payday advancers in California, the annual percentage rate for a payday advance was likely to be greater than the annual rate for an advance given by the organized crime syndicate, contingent upon when a borrower repaid a payday loan (generally within 1–14 days).

However, organized crime's rigorous collection methods can guarantee that fewer loans will default.

LENDERS VS. LOAN SHARKS:

Loan sharks are frequently illegitimate lenders who don't follow official rules. On the other hand, payday lenders are lawful financial institutions subject to state regulation. The former does not consider a borrower's eligibility or creditworthiness while making a loan. However, after a client's credit analysis and eligibility check, the latter sanctions the funding of the loan and follows a credit application process.

Although both offer high-interest loans to borrowers, both moneylenders oppose one another. Furthermore, it's shocking that predatory lenders can charge more than triple digit illegal interest rates. Legally, in some jurisdictions, a payday lender may charge up to four-hundred percent annual interest rates. Loan sharks frequently threaten or harass borrowers when they fail to make payments. In contrast, payday lenders typically choose the moral course by filing complaints with the credit bureaus about defaulters.

According to a New York Times article, a Japanese woman who was deeply in debt to loan sharks had a horrific story. The woman started with a $200 loan, which over time and with multiple lenders, ballooned to a $40,000 debt. The 1983 article also notes that Japan's number of loan sharks doubled over the course of a year to 43,000. Some have ties to the mafia while operating out of small establishments. In approximately 20 minutes, they distributed $1250 without requesting any security.

The borrower's health insurance card served as the only requirement. In 1982, there were so many outlets for predatory lending that four were reportedly the largest providers of consumer loans, surpassing Japanese banks. According to a survey, the average borrower in Japan at the time paid loan sharks $3000 in interest. News reports on crackdowns are common because it is widespread in Asian nations.

In the 2020s, in response to the COVID-19 pandemic and the absence of employment possibilities, illegal lending has increased. Cyber loan sharks have been ensnaring, threatening, and extorting persons in debt using the internet and social media.

In recent times, there have been cases where organized crime members have been arrested on charges of loansharking and illegal gambling. Authorities from New Jersey announced accusations against 11 people, alleging that members and affiliates of a notorious New York crime family ran a racketeering enterprise that generated millions of dollars through loansharking and money laundering. Charles Tuzzo, a reputed Bayside Genovese family capo, was arrested. He was under indictment for conspiring, loansharking, laundering money, as well as inciting gambling. Also detained was Vito Alberti, who was believed to be a Genoese soldier. In addition to one tax-related offense, he was charged with the same charges as Tuzzo.

In another case, it was alleged that Domenick Pucillo of Florham Park owned check cashing businesses that were used for loansharking and money laundering. Over the course of two years, Pucillo had around $3 million in unlicensed loans on the market and earned about $1.3 million in interest by charging rates as high as 156 percent annually.

Loans in Casinos

Casino markers are temporary, interest-free lines of credit that are provided to patrons of gaming businesses for the purpose of gambling. These interest-free loans must be repaid by the players swiftly, usually within 30 days. Obtaining a casino marker requires typically a credit application, and review by casino officials.

The casino will attempt to redeem the marker at the patron’s bank if the deadline to pay back the casino marker (which is about 30 days) has passed. The casino will send a certified letter with a "notice of denial of payment" if the marker bounces due to insufficient money. The patron often then has a short period of time to make good on the debt. Failure to repay the loan may result in legal action being taken.

Loan Sharking in Casinos

Within casinos, loan sharks offer usurious loans to people who are compulsive gamblers, have financial difficulties, or for some other reason, are unable to seek credit from legitimate sources.

There are many recent examples of loan sharks being identified in casinos:

1. Washington State, USA

WA, OLYMPIA - For their roles in a loansharking and money-laundering operation at a Tukwila casino, the Washington State Gambling Commission detained two individuals. It suspended the gambling license of a third. Loansharking and money laundering activities at the Macau Casino in Tukwila have been the subject of several complaints over the past few years to the Washington State Gambling Commission and the Tukwila Police Department. A joint investigation discovered that a female employee was lending casino customers cash and chips while charging outrageous interest rates—sometimes up to 10 times the limit allowed by Washington state law—on the loans. Investigators discovered after studying security footage that the suspect gave at least $300,000 in loans to clients and staff, reaching about 100 in number.

The suspect routinely picked on customers and staff who were addicted to gambling. Many of them battled to pay the monthly or weekly interest (10- 15%) due on the loans because they were making minimum income. Threats of violence were used by the suspect, her boyfriend, and other accomplices to collect debts. Records show that the suspect also used the casino to launder about $1.5 million. Nearly ten times as much money was found as the suspect's alleged yearly income. The origin of the money is still being looked into.

Both the suspect's home and the casino received search warrants. Agents raided the home and seized various goods they suspect were bought with illegal money, including a high-end car, jewelry, big-screen T.V.s, designer purses, and several smartphones, tablets, and gaming consoles still in their original packaging. Additionally, agents seized over $45,000 in cash. Operations at the casino were halted for a number of hours as investigators gathered information and questioned staff members.

The 45-year-old female suspect and her 27-year-old boyfriend were taken into custody and lodged in jail on suspicion of illegal debt collection, money laundering, and using coercive measures to get credit extensions. The inquiry also showed that the casino's general manager was aware of the loansharking and money-laundering activities but neglected to inform the Gambling Commission. His gambling license has been revoked as a result.

2. Manila, Philippines

Casino creditors have been around since the country's first casinos debuted in the 1970s. It is well known that neighborhood loan sharks operate in Newport City, close to the airport and the enormous Entertainment City on the reclaimed ground in Manila Bay.

The gaming regulator warned all local casinos to forbid well-known loan shark syndicates that prey on high-rollers from operating in their buildings. According to the "Protection Against Casino Loan Sharks Act of 2017," the State shall forbid credit and loaning activities of loan sharks within casinos since they seriously threaten people's ability to make ends meet. By making illicit loaning activities within casinos illegal, the State will ensure that people maintain solid financial habits and are given legal protections against collecting a debt.

3. Australia

In 2014, problem gamblers with big debts were hired as drug mules to help them pay back high-interest loans from an Asian criminal organization. The gang preyed primarily on female gamblers who lost a lot of money at The Star casino's gaming tables and poker machines. An investigation into an international student who wagered more than $80 million at the casino over the course of 10 months identified that they were involved with a loan shark.

The Chinese man, who was in his early 20s and was residing in Sydney on a student visa at the time of his gambling binge, was suspected of being involved in money laundering. Casino employees notified the police, who started looking into his associates and found he was connected to an Asian organized crime group that preyed on gamblers. The desperate gamblers were given loans with a 200% interest rate that had to be paid back the next day or shortly after.

Combatting loan sharking in Casinos

In order to combat loan sharking in casinos, there needs to be a coordinated approach from several different teams within the field of gaming compliance. The surveillance department, monitoring the coming and going of individuals on site, has the ability to detect loan sharking activities – such as customer interactions as well as cash handovers – and take appropriate action to remove loan sharks from the casino premises. Engaging with law enforcement is also a key action if there is suspected loan sharking. In addition to the “eye in the sky,” all customer-facing casino staff should be provided with knowledge and awareness of thered flags of loan sharking, both from the perspective of the loan shark, but also knowing how to identify vulnerable patrons.

A casino operator should have, by default and design, an effective responsible gaming program in place where patrons who have problem gambling issues can be directed to in order to receive support and guidance. This may also include self-exclusion.   

While casino staff can monitor what is happening within the walls of the casino, much of the loan sharking activity occurs outside. As a result, there is a significant role for law enforcement in combatting this activity. Given the associations with the casino industry, this is another example of the importance of having a strong 2-way relationship with local law enforcement. In some jurisdictions, such as Ontario in Canada, provincial police maintain a physical presence within a casino and can respond quickly to concerns raised by casino staff.